New York Times - 9 Oct 09

New Way to Tap Gas May Expand Global Supplies

By CLIFFORD KRAUSS
Published: October 9, 2009

Statoil employees tested shale samples for mineral content
at Chesapeake Energy in Oklahoma. - Matt Nager for The
New York Times.

OKLAHOMA CITY - A new technique that tapped
previously inaccessible supplies of natural gas in the United States is
spreading to the rest of the world, raising hopes of a huge expansion in
global reserves of the cleanest fossil fuel.

Italian and Norwegian oil engineers and geologists
have arrived in Texas, Oklahoma and Pennsylvania to learn how to extract
gas from layers of a black rock called shale. Companies are leasing huge
tracts of land across Europe for exploration. And oil executives are
gathering rocks and scrutinizing Asian and North African geological maps
in search of other fields.

The global drilling rush is still in its early
stages. But energy analysts are already predicting that shale could
reduce Europe's dependence on Russian natural gas. They said they
believed that gas reserves in many countries could increase over the
next two decades, comparable with the 40 percent increase in the United
States in recent years.

"It's a breakout play that is going to identify
gigantic resources around the world," said Amy Myers Jaffe, an energy
expert at Rice University. "That will change the geopolitics of natural
gas."

More extensive use of natural gas could aid in
reducing global warming, because gas produces fewer emissions of
greenhouse gases than either oil or coal. China and India, which have
growing economies that rely heavily on coal for electricity, appear to
have large potential for production of shale gas. Larger gas reserves
would encourage developing countries to convert more of their
transportation fleets to use natural gas rather than gasoline.

Shale is a sedimentary rock rich in organic material
that is found in many parts of the world. It was of little use as a
source of gas until about a decade ago, when American companies
developed new techniques to fracture the rock and drill
horizontally.

Because so little drilling has been done in shale
fields outside of the United States and Canada, gas analysts have made a
wide array of estimates for how much shale gas could be tapped globally.
Even the most conservative estimates are enormous, projecting at least a
20 percent increase in the world's known reserves of natural gas.

One recent study by IHS Cambridge Energy Research
Associates, a consulting group, calculated that the recoverable shale
gas outside of North America could turn out to be equivalent to 211
years' worth of natural gas consumption in the United States at the
present level of demand, and maybe as much as 690 years. The low figure
would represent a 50 percent increase in the world's known gas reserves,
and the high figure, a 160 percent increase.

The projections suggest that the new method of
producing gas "is the biggest energy innovation of the decade," said
Daniel Yergin, chairman of the Cambridge consulting group. "And the
amazing thing is there was no grand opening ceremony for it. It just
snuck up."

Engineers and geologists are learning how to extract
natural gas from layers of shale, a sediment. - Matt
Nager for The New York Times.

Over the last five years, production of gas from
shale has spread across wide swaths of Texas, Louisiana and
Pennsylvania. All the new production has produced a glut of gas in the
United States, helping to drive down gas prices and utility costs.

Now American companies are looking abroad for
lucrative shale fields in countries hungry for more energy. They are
focusing particularly on Europe, where gas prices are sometimes twice
what they are in the United States, and large shale beds are located
close to some cities.

Exxon Mobil has drilled a few exploratory wells in
Germany in recent months. Devon Energy is teaming up with Total, the
French oil company, seeking approval to drill in France. ConocoPhillips
announced recently that it had signed an agreement with a subsidiary of
a small British firm to explore a million acres in the Baltic Basin of
Poland.

Early estimates of recoverable European shale gas
resources range up to 400 trillion cubic feet, less than half the
industry's estimates of what is recoverable in the United States. But
European energy executives say they are excited about the prospects
because the Continent's conventional gas reserves are too small to meet
demand.

"It is obvious to everybody that it has huge
potential," said Oivind Reinertsen, president of StatoilHydro USA and
Mexico, a Norwegian company with growing shale interests. "You see a lot
of land-grabbing by different companies in Europe, potentially spreading
to the Far East, China and India."

Donald I. Hertzmark, a consultant who advises
multinational oil companies on gas projects, said that in a decade or
so, the new shale gas resources would improve Europe's ability to
withstand any future reduction in Russian pipeline shipments. In 2006
and again last winter, Russia cut off natural gas deliveries shipped
through Ukraine because of disputes between the two countries, causing
shortages around Europe.

European companies are buying large interests in
shale fields in the United States, partly to supply the American market,
but also to learn the specialized mapping and drilling techniques
required for shale gas.

Several of the European companies have entered into
partnerships with smaller American companies. ENI of Italy paid $280
million in May for a stake in a 13,000-acre gas field north of Fort
Worth operated by Quicksilver Resources. ENI has a crew of four
engineers, a geologist and a geophysicist in Texas to learn from
Quicksilver personnel.

One of the biggest marriages is between Chesapeake
Energy of Oklahoma City and its strategic partner StatoilHydro.

Seeking cash, Chesapeake agreed to sell Statoil a
large stake in its Marcellus shale holdings, centered in Pennsylvania,
for $3.9 billion last November. The two companies are looking at shale
fields in China, India, Australia and other countries. Seven Statoil
employees are working in Oklahoma and Pennsylvania learning to map and
fracture shale, and calculate shale gas pressures, and more are
coming.

"We know the shale is out there," said Lars Erik
Oino, a Statoil geologist working at Chesapeake headquarters here, as he
rubbed hydrochloric acid on a shale sample to test its mineral makeup.
"This could have a huge impact on the European energy situation."